Homeowners can expect hikes in flood insurance rates

Published: Wednesday, March 20, 2013 at 11:42 a.m.

Last Modified: Wednesday, March 20, 2013 at 11:42 a.m.

Many Wilmington-area homeowners hit by waves of property insurance increases in recent years should get ready for another pounding.

Facts

The Biggert-Waters Flood Insurance Reform Act reauthorizes the National Flood Insurance Program until Sept. 30, 2017.It removes two long-standing grandfather clauses that have shielded most building owners in flood plains from higher flood insurance rates.The first is a break for structures built before Dec. 31, 1974, or the date of the first flood insurance rate map (FIRM), whichever is later.Neither homeowners nor wind and hail policies cover flood damage. American insurance companies have not written flood insurance policies for decades. The expense of the claims – and especially how they can be bunched together in a short time – led them out of the business, said Spencer Rogers, coastal engineering specialist with N.C. Sea Grant.The federal program came about to insure homes in flood plains across the country, including those along rivers and other streams.The flood program offered flood insurance at subsidized rates for all buildings – including pre-FIRM ones – if a community was willing to adopt higher flood standards on new construction after a 100-year flood map was implemented, Rogers said.The Bigger-Waters Act leaves the subsidized rates in place for primary residences built before Dec. 31, 1974, but there are major exceptions – including houses that are newly purchased, not previously insured or with temporary policy lapses.Another grandfather clause involves how rates are calculated on post-FIRM buildings. Premiums on those buildings until now could be calculated using the flood map in place when the home was constructed – when, for instance, base flood elevations were lower or before flood zones were expanded. Those map conditions could be used to calculate future premiums, even if the zone or base flood elevation were changed in a later map, Rogers said.The new law, however, provides that all buildings will be rated using the latest maps, he said.

A new federal law is threatening huge hikes in flood insurance premiums for certain homes and businesses when it kicks in this year and next.

The law, called the Biggert-Waters Flood Insurance Reform Act and passed last July, is an effort by Congress to recover losses to the government's National Flood Insurance Program – largely from Hurricane Katrina in 2005 – and to make the program financially sound, said Spencer Rogers, a coastal engineering specialist at N.C. Sea Grant.

As private insurers dropped out of the market, the government developed its program as to make sure that people who live in flood plains have access to insurance.

Goodbye, subsidies

Under the new rules, subsidies that homeowners have enjoyed on the government's program since the mid-1970s will go away, substantially raising premiums for second homes and investment property located in flood zones.

It's not clear how newer primary residences will be affected when the law is implemented.

Additionally, buildings that were built up to snuff in previous years and to the standards of flood maps then will now be measured against the latest flood maps and may now be in flood zones when they previously were not.

Newly constructed structures are being already to current standards, and may be less affected by the changes.

Homes at Charleston Common at Jackeys Creek, for instance, are being built on pilings because the development is in the 100-year flood plain, bordering a marsh.

The development on N.C. 133 in Leland has been dormant for several years, but two houses are under construction now, priced at $169,000, and flood insurance is $400 a year, according to Sandra Britt of Century 21 Sweyer & Associates, agent for Charleston Common.

Catastrophic

Reaction to the flood insurance changes from local officials was anything but understated.

"It would have a catastrophic effect on homeowners," said Wrightsville Beach Mayor David Cignotti. Unless the building is a primary residence, "people might have to sell their property. It's too big of an increase at once," he said.

"Terrible, terrible, devastating," said Steve Candler, CEO of the Brunswick County Association of Realtors (BCAR). "Flood insurance is going to be a huge investment."

So when will the new rules take effect?

"The only thing FEMA has said is that something will happen Oct. 1," said Rogers, who has studied and analyzed the new law's potential effects, which only now seem to be emerging in public discourse.

But owners of structures that are not primary residences that were built in a flood zone before Dec. 31, 1974, could see their premiums go up 25 percent the next time their policy is up for renewal, Rogers said.

It is uncertain what the effects will be on homes built after that date, but more guidance is expected from FEMA by April, he added.

Giant increases

The act removes two so-called grandfather clauses that have effectively subsidized rates, and the result will likely be very expensive for property owners in or even near the 100-year flood plain shown on flood maps, Rogers said.

"And all newly purchased homes, along with second homes and rental homes, will all be required to pay the new, much higher actuary rates," she said.

Actuarial rates are those that would be applied to a house built today using the latest flood map and construction standards, Rogers said.

"Existing homeowners will find out upon renewing their flood insurance policy that they too will be affected," Girardot continued. "Existing homeowners will need to increasingly work with their insurance agent and general contractor to identify key elements of their home's construction that puts them at higher insurance rates and increases their flood insurance policy."

On the islands

That's a particular worry for Mayor Debbie Smith of Ocean Isle Beach.

She thinks that new flood maps will put all people on her island into the high-risk zone.

That in itself would penalize the homeowner, Smith said. But she also pointed to changes in the required height of the house under new maps.

"If the required height was 15 feet above mean sea level" when your house was built, "and today the required height is 17, then you are going to be penalized by higher rates."

BCAR's Candler said the increases would affect the property market.

A wise man would open up a business jacking up houses," he said only partially in jest. "It would be an expensive process, but it could save a building owner $10,000 to $12,000 a year in lower insurance premiums.

Candler also said that flood insurance would no longer be transferable to the next owner at low rates.

Instead, a survey would need to be conducted as the house changes hands to determine the home's new status and rates.

Nothing to like

The new flood insurance rules could even hit Fannie Mae, said Oak Island Mayor Betty Wallace, because some second-home owners won't be able to pay flood rates and will default on their mortgages.

She, Smith and Cignotti also said some homeowners could be tempted to drop their flood insurance altogether. But homes in flood plains are required to have flood insurance if the mortgage on them is backed by government entities like Fannie Mae.

The flood insurance premium increases come at a horrible time for coastal property owners, following large hikes in homeowners and wind and hail rates, Cignotti said.

"I believe that the increase should be incremental, not all at once," though he acknowledged that the law is not very flexible.

The people who really get crushed are the second-home owners or investors, Cignotti added.

"It's going to make it very difficult to sell their property," he said. "I can't see anything positive about it."

<p>Many Wilmington-area homeowners hit by waves of property insurance increases in recent years should get ready for another pounding.</p><p>A new federal law is threatening huge hikes in flood insurance premiums for certain homes and businesses when it kicks in this year and next.</p><p>The law, called the Biggert-Waters Flood Insurance Reform Act and passed last July, is an effort by Congress to recover losses to the government's National Flood Insurance Program – largely from <a href="http://www.starnewsonline.com/section/hurricane"><b>Hurricane</b></a> Katrina in 2005 – and to make the program financially sound, said Spencer Rogers, a coastal engineering specialist at N.C. Sea Grant.</p><p>As private insurers dropped out of the market, the government developed its program as to make sure that people who live in flood plains have access to insurance.</p><p><b>Goodbye, subsidies</b></p><p>Under the new rules, subsidies that homeowners have enjoyed on the government's program since the mid-1970s will go away, substantially raising premiums for second homes and investment property located in flood zones.</p><p>It's not clear how newer primary residences will be affected when the law is implemented.</p><p>Additionally, buildings that were built up to snuff in previous years and to the standards of flood maps then will now be measured against the latest flood maps and may now be in flood zones when they previously were not.</p><p>Newly constructed structures are being already to current standards, and may be less affected by the changes.</p><p>Homes at Charleston Common at Jackeys Creek, for instance, are being built on pilings because the development is in the 100-year flood plain, bordering a marsh.</p><p>The development on N.C. 133 in <a href="http://www.starnewsonline.com/section/topic9971"><b>Leland</b></a> has been dormant for several years, but two houses are under construction now, priced at $169,000, and flood insurance is $400 a year, according to Sandra Britt of Century 21 Sweyer & Associates, agent for Charleston Common. </p><p><b>Catastrophic</b></p><p>Reaction to the flood insurance changes from local officials was anything but understated.</p><p>"It would have a catastrophic effect on homeowners," said Wrightsville Beach Mayor David Cignotti. Unless the building is a primary residence, "people might have to sell their property. It's too big of an increase at once," he said.</p><p>"Terrible, terrible, devastating," said Steve Candler, CEO of the Brunswick County Association of Realtors (BCAR). "Flood insurance is going to be a huge investment."</p><p>So when will the new rules take effect?</p><p>"The only thing FEMA has said is that something will happen Oct. 1," said Rogers, who has studied and analyzed the new law's potential effects, which only now seem to be emerging in public discourse.</p><p>But owners of structures that are not primary residences that were built in a flood zone before Dec. 31, 1974, could see their premiums go up 25 percent the next time their policy is up for renewal, Rogers said.</p><p>It is uncertain what the effects will be on homes built after that date, but more guidance is expected from FEMA by April, he added.</p><p><b>Giant increases</b></p><p>The act removes two so-called grandfather clauses that have effectively subsidized rates, and the result will likely be very expensive for property owners in or even near the 100-year flood plain shown on flood maps, Rogers said.</p><p>Congress has taken away the clauses that protected people who built their homes before the first flood insurance rate map was created, said Donna Girardot, executive officer of the <a href="http://www.starnewsonline.com/section/topic9988"><b>Wilmington-Cape Fear Home Builders Association</b></a>.</p><p>"And all newly purchased homes, along with second homes and rental homes, will all be required to pay the new, much higher actuary rates," she said.</p><p>Actuarial rates are those that would be applied to a house built today using the latest flood map and construction standards, Rogers said.</p><p>"Existing homeowners will find out upon renewing their flood insurance policy that they too will be affected," Girardot continued. "Existing homeowners will need to increasingly work with their insurance agent and general contractor to identify key elements of their home's construction that puts them at higher insurance rates and increases their flood insurance policy."</p><p><b>On the islands</b></p><p>That's a particular worry for Mayor Debbie Smith of Ocean Isle Beach.</p><p>She thinks that new flood maps will put all people on her island into the high-risk zone.</p><p>That in itself would penalize the homeowner, Smith said. But she also pointed to changes in the required height of the house under new maps.</p><p>"If the required height was 15 feet above mean sea level" when your house was built, "and today the required height is 17, then you are going to be penalized by higher rates."</p><p>BCAR's Candler said the increases would affect the property market.</p><p>A wise man would open up a business jacking up houses," he said only partially in jest. "It would be an expensive process, but it could save a building owner $10,000 to $12,000 a year in lower insurance premiums.</p><p>Candler also said that flood insurance would no longer be transferable to the next owner at low rates.</p><p>Instead, a survey would need to be conducted as the house changes hands to determine the home's new status and rates.</p><p><b>Nothing to like</b></p><p>The new flood insurance rules could even hit Fannie Mae, said Oak Island Mayor Betty Wallace, because some second-home owners won't be able to pay flood rates and will default on their mortgages.</p><p>She, Smith and Cignotti also said some homeowners could be tempted to drop their flood insurance altogether. But homes in flood plains are required to have flood insurance if the mortgage on them is backed by government entities like Fannie Mae.</p><p>The flood insurance premium increases come at a horrible time for coastal property owners, following large hikes in homeowners and wind and hail rates, Cignotti said.</p><p>"I believe that the increase should be incremental, not all at once," though he acknowledged that the law is not very flexible.</p><p>The people who really get crushed are the second-home owners or investors, Cignotti added.</p><p>"It's going to make it very difficult to sell their property," he said. "I can't see anything positive about it."</p><p><a href="http://www.starnewsonline.com/section/topic99"><b>Wayne Faulkner</b></a>: 343-2329</p><p>On <a href="http://www.starnewsonline.com/section/news41"><b>Twitter</b></a>: @bizniznews</p>